Successfully Navigating Sequester Cuts: Q&A With Froedtert Health CEO Cathy Jacobson

While all hospital and health systems were hit by Medicare reimbursement cuts from the sequester, academic medical centers and teaching hospitals are hit extra hard — many academic medical centers rely heavily on Medicare, and reductions in graduate medical education funds also affect academic medical centers.

Catherine Jacobson, FHFMA, CPA, is no stranger to the sequester cuts as president and CEO of Milwaukee-based Froedtert Health, a 772-bed system comprised of an academic medical center, two community hospitals, a community-based medical group and several joint ventures.

Here, Ms. Jacobson details how Froedtert is dealing with reduced reimbursements while still pursuing physician group partnerships. She also shares her leadership philosophy and how that has helped her lead Froedtert to success.

Question: All hospitals are facing a loss in funds due to the sequester, but as an academic medical center, Froedtert Hospital is hit extra hard. How have you approached this financial setback?

Cathy Jacobson: We have seen reductions in federal reimbursement coming for a long time. Just as healthcare costs continue to rise, the federal deficit issue becomes bigger and bigger and healthcare eats up a large proportion of the budget. We've had it on radar screen for two or three years and started a value-based cost structure initiative to look at how we can reduce costs.

When the sequester was originally devised, it was meant to be a fallback, but we took the position that this is part of what we see coming, we have a date for it and can quantify it so we're going to budget for it and get expenses out, and if it doesn't happen we'll be ahead of curve. So, we had it imbedded in the budget and adjusted resources and spending, and we were more able to manage through that because we've been at it for a couple years. We didn't start our cost structure initiative because of the sequester, but we didn't have to react to it because we saw it coming and had planned for it.

But healthcare costs continue to be a concern and the biggest issue is they're not done. The sequester didn't fix it, and healthcare continues to eat up a big part of the budget. We know it's not done, and we continue to work on how to reduce the cost of delivering care. The concern is that this is rate ratcheting as opposed to reform. It's the hardest thing to accommodate for if the federal government keeps going after rates. Even though Medicare is moving to pay-for-performance, what's been going on to solve deficit is cutting rates and that's where our continuing concern is.

We've been looking at our own internal cost structure, something every health system is looking at. Step one is to benchmark ourselves against our current performance and the performance of others — we'd better be performing at least as well as everyone else. It could be looking at more efficient use of labor or supply acquisition and purchasing; it is all on the table. We continue to work on the 'low hanging fruit' on an evolutionary standpoint.

We also look for more opportunities for consolidation. Community physician alignment will absolutely help on the efficiency standpoint. We were running on three platforms but consolidated onto one, which helps us to gather efficiencies.

The next phase is looking at if we should change the way we deliver the care to promote standardization and reduce variation. It has been shown to improve quality and reduce cost, but it is harder part to get at. Changing caregiver patterns is hard to do, but is the next phase.

In fiscal year 2013 we budgeted $9 million in cost reductions, and we're beating that this year. We never stop working on it. We're a little ahead this year on our budget, and we're taking an advance on the savings and reinvesting it. We believe the reimbursement situation is only going to get tougher, which is why we're taking the savings and reinvesting it in accelerating the initiative and getting outside analytical help from the investment.

Q: What is the most important metric you look at regarding your system's operations? Has that metric changed due to healthcare reform changes?

CJ: Ultimately, to have a strong and successful organization, you need two things. First, are more people being attracted to system — are we growing? Second, are we generating a margin that can sustain the organization?

Our key goal is to demonstrate superior value. Quality metrics help keep an eye on and support that operating margin, but ultimately it comes down to the growth number and the operating margin number.

Growth used to be measured in inpatient admissions, but we are making a conscious effort to reduce inpatient admissions, so we're rapidly trying to position growth as a metric of people in our service area accessing Froedtert Health. We can't assess that yet because we're on disparate electronic medical records, so instead we have to focus on new patient visits as an indication that more people are seeking us for healthcare.

Q: You mentioned earlier how physician alignment can help with efficiency. I understand Froedtert Health launched a physician practice partnership with the Medical College of Wisconsin earlier this year. How did the partnership come to fruition?

CJ: We actually have had a longstanding joint venture with the Medical College of Wisconsin based on a primary care initiative where we jointly developed primary care offices for the academic medical center. So, we have a longstanding collaboration around community-based physicians.

Physician consolidation went on in Milwaukee around 2008, and independent multispecialty practices started rapidly becoming affiliated with health systems. We picked up some practices during that time, and we ended up with a group of multispecialty physicians based in the community that was of equal size to the joint venture. To be effective in the strategy of aligning healthcare, aligning with the community and the academic medical group and hospitals, we had to get the platform uniform — we couldn't have multiple physician platforms. So, we agreed to put together a jointly governed practice partnership. Implementation is going very well, we are on track to finalize it July 1 but we're running the implementation as one group.

Q: In a Journal Sentinel article, William Petasnick, former CEO of Froedtert, said you have "a track record of getting people to work together." How would you say you developed that skill and why is it useful in the healthcare field?

CJ: My first real leadership position in healthcare was when I was promoted to CFO of a health plan when I was 27 years old. People who worked for me knew far more about their job than I did, and I had to rely on them to guide their departments. I learned that I have to manage by influence as opposed to manage by authority because I had no technical knowledge on what they did. I could be their leader, not person who told them what to do. It taught me you need to lead by influence and not by authority. As I got more involved in the academic medical center and physician leaders, you become aware that's the only way you lead. I learned it early on in the game — to be a leader that tried to get things done by not telling people what to do but expecting them to do it. That has worked for me in terms of a leadership philosophy. I realized along the way as I grew in leadership roles, I can't possibly have all the right answers. So, it's better to put smart people around you and listen to them. Leadership will be better if you listen to folks around you. Listen to physicians and staff, get great insight from them. Have the humility to know you can't possibly have all the right answers.

Q: What do you find yourself spending the most time on as CEO?

CJ: Overall, it is communication — all types of communication, not always formal communication, but a lot of the time it's thinking about how to communicate, be it with the board, the executive team or staff members. Especially in a health system like Froedtert is, there are multiple communities which require multiple conversations with different points of view. I spend an awful amount of time internal and external communication. For example, I'm the chair of the board for Quality Health Solutions. The board is made up of CEOs of organizations in eastern Wisconsin, and we might not all have the same opinion. It takes communication to continue to drive what we do.

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